Submitted By: someone
Answered: August 27, 2021 12:25 am

We owned a home for 21 months but were offered a better position in another state. Will we have to pay capital gains tax on the profits from the sale of the home?

It depends on the amount of the profits. Gain on the sale of a home is excludable from gross income up to $250,000 ($500,000 on a joint return). This full exclusion usually applies only if the home was owned and used as a main home for 2 of the 5 years preceding the date of the sale. However, there is a special rule for “unforeseen circumstances,” which includes a change of employment if the new place of employment is at least 50 miles farther from the residence sold than was the former place of employment. The new exclusion limit is figured by multiplying the maximum dollar amount by a fraction, the numerator of which is the ownership period and the denominator of which is 24 months. Thus, the maximum exclusion for a couple owning and living in the home for 21 months who experienced an unforeseen circumstance would be $437,500 (21/24 x $500,000). If gain is less than this dollar amount, there is no federal income tax on the sale.

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Tax Glossary

Net operating loss

A business loss that exceeds current income may be carried back against income of prior years and carried forward as a deduction from future income until eliminated.

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